2. Suppose a market can be separated into two distinct markets, where P₁ = 26- 2Q1 and P2 = 20 - Q2 are the demands in each market. Total costs are given by TC = 10 + 10(Q1 + Q2). a. Find the profit maximizing level of output and the price per unit in each segment of the market. b. Graph the demand curves, marginal revenue curves, and marginal cost, for each market segment. c. Find the price elasticity of demand at the profit maximizing prices.

2. Suppose a market can be separated into two distinct markets, where P₁ = 26- 2Q1 and P2 = 20 - Q2 are the demands in each market. Total costs are given by TC = 10 + 10(Q1 + Q2). a. Find the profit maximizing level of output and the price per unit in each segment of the market. b. Graph the demand curves, marginal revenue curves, and marginal cost, for each market segment. c. Find the price elasticity of demand at the profit maximizing prices.

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter24: Price-searcher Markets With High Entry Barriers

Section: Chapter Questions

Problem 13CQ

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Economics Q: Firms A and B are two firms supplying products in two separate differentiated goods markets. Equations (1) and (2) give the total cost functions of the two firms: - Firm A: TC = 2Q - Firm B TC = 10 + 2Q -- Each firm has the ability to produce a maximum quantity of 80,000 units in ten batches of 8,000. a. Explain the relationship between the zero-profit curve and the marginal cost curve for the two firms using the quantity schedule of the two firms and the relevant plots of equations (1) and (2). b. Use the plots in Q 1(a) and plots of isoprofit curves valuing Rs. 34,000 and Rs. 60,000 for the two firms to identify any differences in the shape of the two firms' isoprofit curves. Can you provide an explanation for any differences that may exist? c. Use the information on both firms to assess whether the higher isoprofit curves would always get closer to the average cost curve as quantity increases. Explain why or why not. -(1) ---(2) %3D
2. A ski resort faces daily demand given by p = a - Q, where a varies from day to day. Over a three- day period, a takes on the values 80.100, and 120. The marginal cost is zero. The fixed cost for the three-day period is $2500. If the firm uses dynamic pricing, it changes its price every day to maximize profit. If it uses non-dynamic pricing, it sets the same price for all three days, assuming that a takes on its average value of 100 each day. Calculate the consumer surplus and the firm's profit over the three-day period under each pricing approach.
Consider the demand curve illustrated in the figure to the right. Suppose at a price of $8 per unit, a firm's corresponding revenue is represented by the green shaded area. 10.00- 9.00- What is the firm's revenue? 8.00- The firm's revenue equals $0. (Enter your 7.00- response as an integer.) 6.00- 5.00- 4.00- 3.00- 2.00- 1.00- Demand 0.00- 200 1000 400 Quantity 600 800 Price ($ per unit)
2. There are two brands of cigarettes X, Y. The demand for each is as follows: Qx = 80 – 2p Qy = 60 – 0.5p Assume that the marginal cost of producing cigarette X is $10, the marginal cost of producing cigarette Y is $8, and that the market for both cigarettes is perfectly competitive. Assume that each pack of cigarette X smoked does $5 worth of health damage to the smoker, and a total of $4 worth of health damage to the smoker's neighbors via second-hand smoke. Each pack of cigarette Y smoked does $6 worth of health damage to the smoker, and $5 health damage to the smoker's neighbors. (a) Plot the private demand curve and private supply curve for both cigarettes on separate axes. (b) What is the privately efficient quantity demand of both cigarettes? (c) Add the public supply curves to the graphs you plot in (a). (d) What is the socially efficient quantity demand of both cigarettes?
3. A Tennis Club has asked you to devise a profit-maximizing pricing strategy. It is known that a typical player's demand is given by P =40-20, where P is the price of 1 hour court time on the club's indoor tennis court, and Q is the number of hours of court time an individual player would demand during the tennis season. The marginal cost of 1 hour of court time is $2 and that fixed costs are practically zero. a) Calculate the profit-maximizing price and Tennis Club's profits (per player) assuming a per-unit price is charged each customer. b) Determine the profit-maximizing price and Tennis Club's profits (per player) assuming a two-part pricing strategy is adopted for each customer. Your answers: a) per-unit price strategy price profits b) two-part pricing strategy price profits
1. There are two brands of cigarettes X, Y. The demand for each is as follows: Qx = 80 - 2p Qy = 60 - 0.5p Assume that the marginal cost of producing cigarette X is $10, the marginal cost of producing cigarette Y is $8, and that the market for both cigarettes is perfectly competitive. Assume that each pack of cigarette X smoked does $5 worth of health damage to the smoker, and a total of $4 worth of health damage to the smoker’s neighbors via second-hand smoke. Each pack of cigarette Y smoked does $6 worth of health damage to the smoker, and $5 health damage to the smoker’s neighbors. (a) Plot the private demand curve and private supply curve for both cigarettes on separate axes. (b) What is the privately efficient quantity demand of both cigarettes? (c) Add the public supply curves to the graphs you plot in (a). (d) What is the socially efficient quantity demand of both cigarettes?
1. There are two brands of cigarettes X, Y. The demand for each is as follows: Qx = 80 - 2p Qy = 60 - 0.5p Assume that the marginal cost of producing cigarette X is $10, the marginal cost of producing cigarette Y is $8, and that the market for both cigarettes is perfectly competitive. Assume that each pack of cigarette X smoked does $5 worth of health damage to the smoker, and a total of $4 worth of health damage to the smoker’s neighbors via second-hand smoke. Each pack of cigarette Y smoked does $6 worth of health damage to the smoker, and $5 health damage to the smoker’s neighbors. (a) Explain why the public supply curves differ from the private supply curves, and how this represents the externality from second-hand smoke. Highlight the area(s) of your diagram that represents a social loss. (b) Calculate the social loss for both. (c) Suppose the government decides to pursue a Pigouvian solution to eliminate social loss. What's amount of tax or subsidy would the government…
You live in a town with 300 Adults and 200 children, and you arc thinking about putting on a play to entertain your neighbors and make some money. A play has a fixed cost of $2,000, but selling an extra ticket has zero marginal cost. Here are the demand schedules for your two types of customer: a. To maximize profit, what price would you charge for an adult ticket? For a child's ticket?How much profit do you make?b. The city council passes a law prohibiting you from charging different prices to different customers. What price do you set for a ticket now? How much profit do you make?c. Who is worse off because of the law prohibiting price discrimination? Who is better off? (If you can, quantify the changes in welfare.)d. If the fixed cost of the play were $2,500 rather than $2,000, how would your answers to parts (a), (b), and (c) change?
i6 of 16 Freddie is considering opening a diner in a small town. Price Analysts explain to him that the profitability of his diner depends partly on the degree of product differentiation that exists in the market. The graph represent the diner's average ATC total cost curve, ATC, and two hypothetical demand curves, D1 and D2. If the actual demand is D2, what would be the diner's excess capacity? excess capacity: meals D2 D1 Which hypothetical demand curve represents a market 227 312 397 with a higher degree of product differentiation? Quantity (meals per day) D1 D2 not enough information to determine
2. Smile Bright toothpaste company has determined that the demand for its product depends on advertising expenditures A (in thousands of dollars) and the price charged P (in dollars) according to Q = 32A12 - 64P, where Q is the number of tubes of toothpaste sold. The company's marginal costs of production are constant and equal to 50 cents per tube. A. What levels of output, advertising expenditures, and price will maximize the firm's profits? B. Verify at the solution you have found in part A that the marginal revenue from advertising equals the price elasticity of demand.
The college textbook market is a very profitable segment for global book publishers. Assume that ABC publisher’s best-selling economics textbook has this demand curve: P = 150 - Q, where Q denotes yearly sales (in thousands) of books. The cost of producing and shipping each additional book is $40, and the publisher pays a $10 per book royalty to the author. The publisher’s overall annual promotion spending entails an average cost of about $10 per book. a. Find ABC’s profit-maximizing output and price for the economics textbook. b. Another publisher has raised the price of its best-selling economics text by $15. Would you follow suit (that is, would you match the price increase for your textbook)? Explain briefly why or why not. [Hint: construct the new demand curve, taking into account the price hike and recalculate P* and Q*] c*. To save on fixed costs, ABC plans to contract out the printing of its textbooks to outside vendors. Obviously, this would entail a higher printing cost for…